You may have a business that you operate as a limited liability company (LLC). Later, you may start one or more other business. Whether you should include all your businesses under the same LLC depends on several factors.
One of the principal reasons to operate a business as an LLC is liability protection. Generally, your business creditors could not make claims against your personal assets to satisfy debts of your business when it is set up as an LLC. If you have more than one business under a single LLC, the assets of all the businesses could be subject to the liabilities of any of the businesses.
As pointed out by Karen E. Klein in an article on Bloomberg Businessweek, different types of businesses can have different levels and types of risks of liability. You may not want to expose the assets of one business held under a single LLC to the potential liabilities of another type of business under the same LLC. In this case, from a liability protection standpoint, it would make sense to set up separate LLCs.
This liability protection concept could also apply to investment properties held by an LLC. As explained by Chrissie Mould in PowerHomeBiz.com, property owners may want to set up separate LLCs for each property. This way, if one property is faced with a debt, claim or judgment, the other properties would not be affected.
While it is generally fairly simple to set up an LLC, having more than one business under the same LLC could simplify state filing and reporting requirements. As indicated by the U.S. Small Business Administration, you would generally have to file articles of organization with the Secretary of State to set up an LLC. Depending on your state’s requirements, you may need to file an operating agreement and annual reports. You may also have to pay an annual fee for your LLC.
The licenses and permits you need to operate each of your businesses will depend on the nature of the business and the applicable federal, state and local requirements regarding your business activity. Even though you operate more than one business under the same LLC, you may still have to obtain separate licenses and permits for each business.
Another consideration would be the name you use to conduct your different businesses. As explained by Nellie Akalp in an article on Small Business Trends, you would need to register a fictitious name or doing business as (DBA) name if you operate your business using a name other than the name of your LLC. Therefore, by registering different DBAs you could operate more than one business under the same LLC.
For federal income tax purposes, LLCs are considered pass-through entities. The profits or losses of the LLC are passed through to the members. According to the IRS, an LLC with at least two members is classified as a partnership for federal income tax purposes, unless the LLC elects to be treated as a corporation. And a single-member LLC is a disregarded entity that is not separate from its owner, and would be reported as a sole proprietorship, unless the individual elects to treat the LLC as a corporation for tax purposes. You could also elect to have the LLC treated as an S corporation for federal income tax purposes.
If you have more than one separate and distinct business under an LLC that is treated as a sole proprietorship for tax purposes, you would have to file a separate Schedule C for each business when you file your personal income tax return. Depending on the facts and circumstances, different businesses that are similar could be combined as one undertaking. But if the businesses are substantially different they must be reported separately.
As indicated by the U.S. Small Business Administration, some states tax the income of LLCs. You should check with the state income tax agency for the rules in your state.
Separate businesses, even under a single LLC, would require separate record-keeping, in order to file separate Schedules C, if applicable, as well as for you to know how each business is doing. If you have common administration and other expenses that apply to more than one business, you could allocate the expenses on a systematic and reasonable basis.
Chrissie Mould, How to Form LLC as Parent Company with other Separate LLCs, PowerHomeBiz.com
Limited Liability Company, U.S. Small Business Administration
Karen E. Klein, Two Businesses, One LLC? Bloomberg Businessweek
Limited Liability Company (LLC), IRS
Nellie Akalp, Does Your Business Need a DBA? Small Business Trends